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Brazilian ETFs Drop as Protests Rage

Protests continue to rage across Brazil with no immediate end in sight. on June 21 over 60,000 people took to the streets in the nation’s capital of Brasilia and left the Foreign Ministry “in a state of destruction.” Protests are raging across the rest of the country as well, with major uprisings reported in São Paulo and Rio de Janiero.

The protests initially began as a result of popular discontent over a 20 Real (approximately $0.10) hike in public bus fares, which started in Rio and then spread into a full-blown national movement. In fact, many of the protester’s signs read "twenty cents was just the start." Complaints about class inequality and billions spent by the government on the upcoming World Cup have further disenfranchised Brazillians, and in response the Brazilian people have taken to the streets.

Brazil's markets are responding negatively.

Immediate Economic Aftermath

Financially speaking, the protests are the second blow in a rough week for Brazil. On May 30, Brazil hiked interest rates 50 base points to 8 percent, despite the fact the economy only grew 1.95 percent. The real dropped to a four-year low on Thursday, as did Brazil’s stock exchange, the Bovespa. The Bovespa is down 1.88 percent.

And unsurprisingly, Brazilian ETFs are suffering. The largest and most popular Brazilian ETF iShares MSCI Brazil Index (EWZ) is down one percent at 43.46, and is down over 20 percent over the last three months. ETF Global X Brazil Mid Cap (BRAZ) is down 1.76 percent to 12.48. And Global x Brazil Financials is getting rocked: it's down to $10.36 a share, for a 4.6 percent total loss.

Resolution

One of the main differences between the protests in Brazil and the unrest in Turkey that began in May is the fact that the Brazilian government is sympathetic to the demands of the protesters. Brazilian President Dilma Rousseff is a former Marxist guerilla, and was swept into office in 2011 on a leftist platform. Rousseff applauds the direct action of the people, and said in a nationally televised address "The direct message from the streets is for more citizenship, better schools, better hospitals, better health, for direct participation," she said in a nationally televised address. "My government is trying and committed to social transformation."

Rousseff called an emergency meeting to try to end the protests quickly as possible – the movement has already disrupted pre-World Cup matches at the Confederations Cup. The disruption is already being viewed as a national embarrassment.

Brazil Going Forward

Brazillian government has already capitulated to some of the protesters demands, notably rolling back that plan to raise bus fares that ignited the movement. The next big call to Rousseff is to end the corruption and cronyism that became endemic during her predecessor Luiz Inácio Lula da Silva’s administration. Lula oversaw broad social reforms and the rise of Brazil to a major economic superpower. Rousseff ‘s administration on the other hand has seen a May Standard and Poor report downgrading Brazil to a “negative outlook” and the Bovespa losing over a third of its value.

Rousseff is still one of the world’s most popular presidents – her approval rating pre-protests was sky high (low 70s). A lot of her popularity stems from her social reforms that raised people up a class level while the Brazil’s economy has dwindled. But she now faces perhaps her toughest balancing act yet as the protests swell to over a reported one million people and the Brazilian economy continues to struggle.

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